News-Based Momentum

Trade after the news release, never before for beginners. Pre-news trading is essentially gambling on unknown outcomes. Wait for the announcement, let the initial chaos settle (2-10 minutes), then trade in the confirmed direction. Yes, you miss some of the initial move, but you avoid being wrong-sided on unpredictable outcomes.

Research consensus expectations: 1) Reuters/Bloomberg economist polls for BoE decisions. 2) Analyst estimates for earnings (from company investor-relations pages and consensus aggregators). 3) Economic forecast consensus for GDP and inflation (FT, Reuters). 4) Pre-event commentary from financial media. 5) The SONIA/OIS curve for market-implied rate expectations (requires more expertise). Building this research habit is essential for news trading.

This happens when: 1) The good news was already expected ('priced in') - no new information. 2) The good news was less good than expected - disappointment despite a positive headline. 3) 'Sell the news' - traders who bought the rumour sell on confirmation. 4) For the FTSE 100 specifically, news can lift GBP, and a stronger pound shrinks the value of overseas earnings, dragging the index even on good domestic news. Always look beyond headlines to understand how news compares to expectations and how GBP reacts.

Essential sources: 1) The Bank of England website for monetary policy. 2) The ONS for economic data (GDP, CPI, labour market). 3) The LSE Regulatory News Service (RNS) for company announcements. 4) The Financial Times, Reuters and Bloomberg for breaking news. 5) X/Twitter for the fastest breaking news (verify before acting). 6) Your broker's alerts for instant corporate-action notifications. Have multiple sources to avoid missing critical news.

It varies by news significance: Minor news: 15-30 minutes of impact. Moderate news (monthly data): 1-2 hours of clear direction. Major news (BoE, Budget): 2-4 hours of primary move, which can set a multi-day trend. Breaking crisis news: can create trends lasting days or weeks. Most news-driven momentum exhausts within the trading day, but significant events can reset market direction for longer periods.

Approach: 1) Monitor FTSE 100 futures (ICE, near-24h) and US index futures for overnight price discovery. 2) Assess the gap size and likely type (continuation or fill). 3) Before the open, decide: trade the gap fill, the gap continuation, or wait for clarity. 4) At the 08:00 open, wait 10-15 minutes for volatility to settle. 5) Execute based on price-action confirmation. 6) Manage the position normally. For major overnight events (FOMC, a US crisis), expect larger gaps and more volatile opens - reduce position size.

Ride when: 1) The news is significant with a clear implication. 2) The move is confirmed by volume and momentum. 3) Multiple timeframes/assets align. 4) The news creates a fundamental shift (not just sentiment). Fade when: 1) The news seems like an overreaction. 2) The initial spike shows immediate reversal candles. 3) Volume is declining on the spike. 4) The news is minor or misinterpreted. 5) The news was largely priced in. Default to riding; fading is higher risk.

For index futures: 1) Track heavyweights' reporting dates (Shell, AstraZeneca, HSBC, the big banks). 2) Assess the sector-concentration impact on the index. 3) Trade index futures based on the cumulative sector reaction. For single stocks: 1) Trade only large-cap liquid names (via CFDs). 2) Wait for the gap to settle before entering. 3) Use partial position sizing (higher volatility). 4) Trail stops aggressively - earnings momentum can reverse quickly. Consider options for defined risk on individual stock earnings. Note that UK firms typically report half-yearly plus quarterly trading updates, around 07:00 London.

The UK Budget creates sector-specific and broad market moves, and is unusually gilt-sensitive. Preparation: 1) Identify key expectations (energy windfall levy, bank surcharge, housebuilder/stamp-duty measures, defence spending are often speculated). 2) Be ready for any outcome. Execution: 1) No position before the Chancellor's speech. 2) The first 30-60 minutes are very volatile - sector rotation is rapid. 3) Wait for the dust to settle before taking positions. 4) Trade the FTSE 250 (more domestic) or sector exposure via single-stock CFDs/ETFs, since there are no liquid sector-index futures. 5) Watch the gilt and GBP reaction closely - fiscal surprises can move gilt yields and the pound sharply (the autumn 2022 episode is the cautionary precedent). Expect reversals - initial reactions often overshoot.

If the position is not moving after 30-60 minutes: 1) Re-assess the news interpretation - was the market reaction different than expected? 2) Check whether liquidity/volume dried up. 3) If the position is flat (not losing), you can hold but tighten your mental time stop. 4) If the position is losing but not stopped, consider exiting and reassessing. 5) If the position is slightly profitable but momentum is dead, take the small profit. Don't hold indefinitely hoping the news 'kicks in' - momentum trades should show results relatively quickly.

Framework (a disciplined process, not a black-box model): 1) Data collection - maintain a historical log of news events with timestamps, content, and the market reaction. 2) Reference factors - surprise vs consensus, statement tone, event type, time of day, prevailing market conditions. 3) Scenario tables - for each event type, pre-define how you expect price to behave under each outcome and at what levels you would act. 4) Validation - paper trade your rules for 2-3 months before committing capital, checking for hindsight bias. 5) Execution - combine your scenario read with live price-action confirmation; never trade the scenario alone. A disciplined, well-confirmed process can be directionally accurate roughly 55-65% of the time, but it depends on patience and strict confirmation rather than automation.

It depends on the IV level. High IV (>80th percentile) pre-event: straddles are expensive. Consider waiting for the post-event IV crush to sell premium, or use spreads to reduce vega exposure. Normal IV: a long straddle/strangle if you expect a large move but are uncertain on direction; a calendar spread if you expect an IV crush without a big move. Post-event: if the direction is clear, buy directional options for leverage; if volatility is high and you expect normalisation, sell premium. Key insight: the IV regime should drive the strategy choice, not just your directional view. FTSE 100 options on ICE are European-style and cash-settled.

Build a real-time dashboard: 1) Gilt yields (10Y) - rate-sensitivity indicator. 2) Currency (GBP/USD, EUR/GBP, DXY) - and remember the FTSE 100/GBP inverse link makes the currency reaction a key equity read. 3) Commodities (Brent crude, gold, copper) - risk-sentiment and FTSE energy/miner indicators. 4) Global futures (FTSE 100, S&P futures) and VFTSE. Signal integration: on a news release, observe which asset class reacts first and strongest, and use it as a leading indicator for equity direction. Confirmation: enter the equity position only when multiple asset classes confirm. Divergence: if equity moves but gilts/GBP don't confirm, be sceptical of sustainability.

Tail-risk management: 1) Position sizing - max 1% risk per event, max 2% total news exposure. 2) Hard stops - always in place, non-negotiable. 3) Portfolio hedging - consider OTM puts during event-heavy periods. 4) Correlation limits - don't have multiple positions affected by the same news. 5) Circuit breaker - an automatic trading pause after a 3% daily loss. 6) Liquidity awareness - reduce size when spreads widen. 7) Black-swan acceptance - understand that extreme events can exceed any stop; size accordingly. News creates fat tails - plan for them.

Review framework: 1) Track every news trade - event type, timing, entry/exit, P&L, market conditions. 2) Analyse by category - which news types are profitable? Which timing windows work? 3) Test variations one at a time - different wait times, stop distances, position sizes. 4) Periodically re-analyse and adjust parameters. 5) Edge monitoring - track your rolling win rate and expectancy; declining metrics indicate potential edge decay. 6) Behavioural analysis - identify whether your interpretations systematically differ from the market, and adjust or avoid those news types. Conduct a systematic review quarterly and a deeper recalibration annually.